Tag Archives: stock market crash

The U.S. Economy Is Headed Into A Deep Recession

A reader contacted me earlier today after seeing the absurd article on the Wall Street Journal heralding in the “7-year bull market” in stocks:

Absolutely amazing they can put out crap like this:   “Still, with GDP growth expected to be 2.3% this year, according to a group of more than 60 economists surveyed by the Journal, market strategists project the current bull market has more room to run.”  The WSJ editors just lost all credibility they may have had with that end to the article. How could they find more than 60 delusional [or shill] economists that all say the sky will be blue for years?  I’m tired of worrying for myself and my family. Where can I find what they are smoking? Must be some really good hopium.

It has not been a seven-year “bull market” in stocks or housing prices, it  has been the biggest bull market in money printing and credit creation in history.

While the media clowns and Wall Street shills celebrate the seven year “bull market” in stocks, the fundamentals underlying the U.S. economic and financial system continue to deteriorate – quickly.

The most recent economic activity “end zone” dance was over February’s domestic auto sales, which seem to be occurring at an all-time high when viewed on an “annualized rate” basis.  Of course, no one wanted to discuss the fact that Ford’s sales would have been flat or negative if their huge jump in rental fleet deliveries were stripped out of their numbers.  GM’s sales were down slightly, and dealer inventories continue to balloon.

What’s worse, subprime auto loan delinquencies are spiking up to their 2008 pre-financial collapse level (click to enlarge):

UntitledIt’s no secret that the banks have been willing to extend to auto loans to anyone who can fog a mirror.  Credit score is largely irrelevant and there’s no requirement to show proof of income.

The prelude to the 2008 de facto financial system collapse, washed by trillions in QE and added credit, is now starting to repeat again.  An article in the Wall Street Journal (source: Zerohedge) is reporting that used car prices are headed lower again.   With over 32% of all car “sales” accounted for by leases, as these cars come off lease and flood the used car system, prices fall.  This in turn affects the amount for which someone with a used car can get paid in order to “buy” a new car.  Add that inventory to the already sky-high repo inventory, and the auto sector is set-up for a huge “pile-up” crash.   But go ahead and just conveniently ignore the record level new car inventory sitting on dealer lots…

Meanwhile, the wholesale trade “gap” – the difference between the level of wholesaler Untitledinventory and sales – is now at a record level.  Furthermore the wholesale inventory to sales ratio has spiked up to its late summer 2008 level (click to enlarge):

This ratio is spiking up from both excessive inventory accumulation at the wholesaler level of the distribution system and declining sales of this inventory to the retail sector, reflecting weak consumer spending and an outlook for continued weak consumer spending.

What’s perhaps the biggest factor contributing to what I believe is a rapid deterioration in economic activity?  “Americans are buried under a mountain of debt:”  LINK  Per findings in the article from Gallup:  “The amount of debt Americans carry is staggering and grows every day.”

The “celebration” of the seven year “bull market” is emblematic of the degree to which propaganda is being used to cover up the truth.   If you give me a printing press to print money or an ability to issue an unlimited amount of credit, I can make any object increase in value.  The big run-up in the stock market and home prices and in auto sales was enabled by $4.5 trillion in printed money from the Fed and the enabling of an insane amount of credit creation, including derivatives which are nothing more than another form of credit.

When this hits a wall – and I think the gold market action is telling us that the collision is occurring or is imminent – it will cause a systemic upheaval that will make 2008 look like a civilized tea party.  

Insanity Engulfs The Stock Market

I have no idea who is throwing cash into this highly overvalued stock market to push it higher right now. Any registered financial advisors or pension managers who are buying into this stock market right now are in serious breach of their legal fiduciary duty.  While there’s likely a modicum of retail daytraders and momentum-chasing “hedge” funds chasing the upward velocity, I have a an educated hunch that the Fed and the Treasury’s Working Group on Financial Markets – headquartered in the same building as the NY Fed – are behind this insane thrust higher in the S&P 500 and the Dow.

But as Shakespeare once said (in Macbeth) “nothing is but what is not.”  Beneath the facade of the S&P 500 index spike up over the past 2 weeks, smart money appears to be unloading long positions before this “Titanic” hits the iceberg (click to enlarge):

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With good reason, too. If GAAP earnings were calculated the way they were calculated 20 or even 10 years ago, the p/e ratio for the S&P 500 would be at its highest in history. Furthermore, “smart” investors would not be chasing stocks higher while earnings and revenues are declining, as they have been for several quarters.

The on-balance volume and positive volume indicator signals in the graph above show an extreme divergence from the direction of stock market.  This indicates that – away from the key stocks used to push the S&P 500 and Dow higher – big money is unloading stocks while the SPX/Dow appear to show strength.  It’s brings to mind the “Rome burns while Nero fiddles” metaphor.

In the graph above, you can see that the S&P 500 appears to be carving out a pattern similar to the path it took from last August through early November, before it dropped off a 12.5% cliff.  No one knows if this same pattern will repeat, but there’s always the chance that the Fed is trying to push the S&P 500 back up to its 200 dma (red line).  We’ll know if this gets accomplished soon enough.

Meanwhile, it’s still possible to make a lot money shorting the stock market as long as you are “nimble.”  On Monday mid-day, I emailed my subscribers with what I call a “quick hit” trade set-up that had developed in Big Five Sporting Goods ((BGFV) – click to enlarge:

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The suggested trade was to buy puts or short BGFV before the close on Tuesday and cover it or sell the puts right after the open on Wednesday (today).  I had some additional analysis to support the trade idea.  BGFV actually “beat” its earnings number but it required some hard-core GAAP engineering to accomplish this.  Revenues were in-line but the stock was hit for over 18% at the open today.

Several subscribers emailed me today with their success on this trade:  “Good call on BGFV. Scalped it twice…Thanks for this trade, 117% return in less than 24hrs, not too shabby, lol…Got small position in the $12.50 puts just before the close. Sold this a.m. as instructed for 112%…We did this trade-our first with your service–and got a little better than a triple!!

You can subscribe to the Short Seller’s Journal here:   LINK  or by clicking on the image to the right.  It’s been a difficult stretch for shorting this market but most of my emphasis and NewSSJ Graphicideas are focused on longer term trade ideas (12-18 month). I always include ideas for using options with specific examples.

The intra-week email “alert” was not originally part of the service but I tried it out several weeks ago and had a great response.  I only send them out when I come across an idea that merits doing so.  Finally, SSJ subscribers will be able to subscribe to the coming-soon Mining Stock Journal (hopefully Friday) for half-price.

Coming Soon To Your Local Economy: Oil Rout Hits Houston’s Rich

To be sure, oil executives are not alone in feeling the pain. Many blue collar jobs in oilfield equipment production have disappeared. So have thousands of middle management jobs in oil exploration and production. A regular Uber customer is likely at some point to ride with a former energy industry professional. – Reuters article on Houston economy

The effect of the collapse in energy is starting to exert its force on the financial system and economy. JP Morgan warned last week that it will need to reserve more against its energy assets. These “assets” are loans that the bank was unable to “syndicate,” meaning JPM was stuck with these loans because it was unable to sell these loans to other banks or investment funds. Thousands of energy sector jobs have been cut with likely 10’s of thousands more to come. These are the “direct” job losses. “Indirect” job loss will occur as the wide swathe of economic loss in the energy sector begins to reverberate widely through the economy, especially in the housing, auto and service sectors.

A colleague of mine who is an energy banker told me that the President of a major regional bank in Houston confessed that full force of economic damage from the collapse in the energy sector is just now beginning to pummel the greater Texas economy. I am certain the same can be said for all other energy-producing regions of the country.  – excerpt from the Feb 28 issue of the Short Seller’s Journal

The jobs bloodbath is just getting started.  Morgan Stanley announced that it is cutting 25% of fixed income operations;  several other big Wall Street firms have announced plans for large job cuts this year;  major U.S. retail chains have announced the closing of 6,000 stores nationwide.  Outplacement firm Challenger-Gray reported a couple weeks ago that, according to its job-cut data, layoffs in January jumped 200% from December.

It’s been estimated that at least a third of the 175 oil producing companies in the U.S. are at risk of slipping into bankruptcy this year. At some point banks are going to have to start foreclosing on defaulted loans and many companies will be forced to liquidate. Shell Oil announced this past week that it is exiting its North American shale operations. The writing is on the wall. This is going to inflict a significant amount of damage to the U.S. economy – an amount of damage that is not yet being anticipated by investors or by the policymakers.  – Short Seller’s Journal

This week’s issue of the Short Seller’s Journal features an extraordinarily overvalued restaurant industry stock that is aggressively issuing debt to buyback shares so insiders can dump their restricted stock units. This company has a huge negative book value.  The issue also features a homebuilder short that has, minimally, another 65% of downside ahead of it in the next 12-18 months.  Insiders are dumping shares of this company likeNewSSJ Graphic there’s no tomorrow.   There have been zero open market purchases of this Company’s stock by insiders over the last 12 months.  The Company has more inventory and more debt than it did at the peak of the housing bubble but its revenues and number of units delivered are running about 2/3’s of what they were at the bubble peak.  Finally, the issue features  a silver mining company which is now a big silver mine plus two potentially highly prolific gold mines plus some ideas for using puts to replicate shorting AMZN, which I think is ready to roll over again and head lower.

“I am just writing to let you know that I enjoy SSJournal and especially examples of how trading strategies could be executed, with actual described cases – to me that is the best way of learning.  I think that is most valuable for me. “

Did The Stock Market Bottom Last Week? You Can’t Be Serious

Toward the end of last week, when the S&P jumped 58 points (3%) for the week, 46 on Friday alone.  The negative interest rate announcement by the Bank of Japan triggered the move on Friday.  Earlier in the week the bottom-callers in oil were on their megaphone proclaiming a new bull market in oil, which got the stock market permabull drones all giddy.  The trading action last week was entirely characteristic of a typical bear market short-squeeze rally fueled by momentum-chasing hedge funds and daytraders who had piled into the short side of the market as they chased momentum lower.

Typically these bear market counter-trend rallies are short-lived and are followed by sell-offs to new bear market lows.

I was quite dismayed by all of the stock market bottom-callers who jumped out of hiding to announce that the stock market “water” was warm and that it’s safe to jump in.  Several of these mentally challenged mutual fund manager drones were on bubblevision Friday. These guys are either complete morons or ethically challenged.  If it’s the latter case, then they are breaching their fiduciary duty by encouraging the public to put more money in their funds.

An article in the Wall Street Journal featured a money manager who tried to make the case that the bottom is in.  Again, I hope that view comes from stupidity rather salesmanship.   And some guy named Rob Arnott who supposedly manages a zillion dollars was featured on a well-known podcast website encouraging listeners to put money in emerging markets. May as well take lighter fluid and a match to your money.  At least that would be worth the heat you create from the fire.

It simply blows my mind that, after 6+ year bull market in stocks that was entirely a product of money printing by Central Banks globally, a supposedly well-educated market “professional” can announce that the market has bottomed after a paltry 10% decline. The directional movement of the stock market is now solely derived from the actions and words coming from Central Banks.  The valuation levels in the stock market have never been more dislocated from underlying fundamentals than the present era and thus conveniently ignored.

But we can’t even begin to discuss a bottom until the entire investment universe is focused on real fundamentals.  This guy Rob Arnott tried to make the case that the emerging markets represent “deep” value.  That must be some kind of joke.  Many of the emerging market countries are the verge of financial, economic and political collapse.  If you put your money in Mr. Arnott’s fund you may never see it again.  But just like every other big money manager, he’s motivated by selfish interests.  If he were to preach the truth, his investor base would disappear and along with it the $10’s of millions in fees he’s making off of it.

I have a couple of friends who manage individual accounts. They both called me on Friday with the same story of taking multiple calls from clients asking  if the sell-off was over and if it was time to move more money into stocks.  That’s one of the surest signs that the move last week was nothing more than a bear market counter-trend rally.

Bear markets are designed by the laws of nature to inflict damage on as many people as possible.   Weeks like last week are designed to keep the middle class invested in stocks while the market goes lower.  The truth is that the entire global financial/economic system is collapsing.  The stock market and credit market action in January was nothing more than tremors ahead of a massive “earthquake” that will inflict unimaginable financial damage.

It’s part of the human condition to believe that really bad things can’t happen.  This is a big part of the reason it takes a long time for a bear market in stocks to unfold.  That plus blinding greed.  But the unfortunate truth is that more than likely the stock market in general will have to drop at least 50-70% before we can credibly discuss whether or not a bottom will occur.  I say 50-70% because most people would not believe me if I were to disclose where I really think the stock market is headed before this over.

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The weekly issue of the Short Seller’s Journal has been released this afternoon.  This is my best issue yet and includes an options trading resource (emailed separately).  I have identified a short-sell idea that takes advantage of a highly leveraged company exposed to a highly cyclical industry and has significant exposure to subprime counterparty risk.   I also have a leveraged energy sector “Quick Hit” play to take advantage of what appears to be yet another rumor-driven short-squeeze move in the price of oil last week.

Finally, I have some preliminary comments for subscribers on AMZN’s earnings report.   Every quarter I seem to discover more problematic aspects to AMZN’s business model.  By the way, as predicted, the growth in its cloud computing sales – the so-called AWS buiness – are starting to show signs of slowing down.

Click here or on the image above to subscribe:  SHORT SELLER’S JOURNAL

Thanks for putting together an informative report with actionable ideas. For years I have stared in stunned disbelief as the rigged up, QE inflated stock market kept defying gravity but it looks like the chickens are coming home to roost now. With the ideas you provide, I hope I can take advantage of the coming downturn with some profitable trades.

John B’s Caravan To Midnight: The War On Sanity

John B Wells hosted me on his “Caravan To Midnight”  for the quickest two hours of my day.  Caravan To Midnight is a late-night internet radio show covering a wide range of topics which include current events, politics, conspiracy theories and unexplainables.  This is the second time I’ve been on his program.  John B and crew take a refreshing and entertaining approach to goal of audience enlightenment.   Both times I’ve been on his show the two hours seemed to last 10 minutes.

In the two-part podcast linked below, we discuss several current topics including the war on cash, the war on gold and the systemic decay of the United States, among some other timely/controversial topics.

I just wonder if people still have the desire for privacy…I don’t mind a fight – I don’t even mind a fight that I can’t win…I’m okay with that if it’s a righteous fight. The only fight you don’t want to get into is an unrighteous fight because you can’t fight with everything you’ve got if you’re in the wrong. But I really wonder if the citizens of this country and of the world have the desire to really live free.   – John B

Wall Street was a big scam when I worked there in 1990’s. The difference between then and now is that the bank personnel who’s job it is to enforce financial regulations and compliance are now in on the scam too. They don’t want you to adhere to the law because it affects their bonus. Wall St. and DC have lapsed into unfettered corruption.

I was raised believing there was right and wrong and you were supposed to do your best to do what was right. I’m not a guy who’s terrorized by the idea of sin but it was not cool to do things that were wrong. Well, when I got to Wall St. it was not uncool to do things that were wrong as long as it helped the bonus a little. But now it’s cool to do things that are completely wrong because it leads to a gigantic bonus.  –  Dave Kranzler  – PART 1:

At the beginning of Part 1, John B had asked me what I thought had changed in the last several weeks that acted as the catalyst to cause the stock market to begin falling apart. We got around to addressing that question in Part 2:

The Government is sensing that it’s run out of room to print another $5 trillion and it needs the money it takes in from selling Treasury bonds for the war on terror, the war on Russia, the war on terror the war on Middle East, the war on China – they need that money for  an agenda that  does not include saving the middle class.  “Whatever is coming that’s going to hit, when it hits it’s going to be a whole lot tougher on the middle class than 2008:”

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Is AMZN’s Genie Finally Out Of The Bottle?

A curious news report hit the tape yesterday which described a “major shift in [Amazon’s] thinking” – AMZN Buys Rights To “Wiener-Dog.”  I find it curious because,  a) the author of the report clearly has not read my Amazon dot Con stock research report and b) there has not been a “major shift” in AMZN’s “thinking.”  (click to enlarge image)

UntitledThis move by AMZN has been endemic to the way Jeff Bezos operates since he transitioned the Company from a simple-model online book-store into a gigantic Ponzi scheme which has fomented one of the most overvalued high profile stocks in history.  Oh by the way, he’s fleeced shareholders for 10’s of billions of dollars over the last 20 years.

This news report embodies the myth of Amazon.  Every time Bezos rolls out a new add-on to his business model, the AMZN stock bulls herald his genius and the stock goes nuts.  We’ve seen this countless times over the years including recently:  drone delivery, restaurant menu delivery, same-day delivery, cloud computing, content delivery…And yet, curiously, Bezos has never been able to deliver bona fide net income to his shareholders from his add-on Ponzi business ventures.

His true business model is selling dreams to AMZN perma-bull shareholders as a technique to trigger a stampede into the stock.  Heck AMZN stock jumped when Bezos announced hisponzi_scheme personal venture to develop a space travel company.

But perhaps the market is finally catching on.  AMZN stock is down 2.5% today as I write this. I suspect the market may see the through the  transparency of  his latest “major shift in thinking.” He spent a few million dollars of shareholder money on a movie called “Weiner Dog” that was thoroughly panned by critics.   One might think a few million spent is a meaningless amount to a company with at $285 billion market cap.  The problem is that the “money spent” in recent years is being funded with junk bonds.

This is how Bezos has been operating over the last 20 years.  Spending money thrown at him by the stock market into business ventures that lose money and burn cash.  My Amazon dot Con report lays this out in detail.  The truth is that, over the last 20 years, Bezos has become one of the richest men in the world and AMZN stock recently hit a market valuation of $325 billion.  And yet Bezos has only been able to delivery $1.9 billion in net income cumulatively to shareholders over the last 20 years.

The Global Bubble Is Popping – SGT Report Podcast

“Two kindred spirits talking about reality” –  SGT

“What caused me to almost fall off my chair when I read that article (San Francisco Fed President John Williams gave a speech in which he stated that he Fed would raise interest rates 3-5 times in 2016 and asserted that the economy “is in good shape”) was when he said the economy was doing fine. I’m not really sure what data he’s looking at or if he’s being completely disingenuous for the sake of being a cheerleader on the economy…We would have to sit down with him in private and show him the data and say, “what are you really looking at here, John, because your statement makes you look like a complete idiot to everyone out there who knows the truth.”

“Anyone who wants to buy precious metals now and they understand the reason why and they want to convert their fiat currency into precious metals – buy as much silver as can…silver is extraordinarily cheap outright and its extraordinarily cheap vs. gold.”

Non Farm Payroll Report: “Good Grief, These Guys Are Shameless”

The manipulation of markets (witness today) and the overt lying about the economy intensify as we move inexorably towards the precipice.  – John Embry

Short Seller’s Journal update:  My “Quick Hit” pick is now down 27% from its Dec 31 close.   Subscribers who took the plunge on my put option play are up over 500%.  The put expires today and is a little over $5 in the money (it was a slightly out of the money put on 12/31/15).  My long term short sell play is up (down) over 14%.  This is a stock that I believe will go from $30 (12/31) to $10 by 2017.  Short Seller’s Journal

The headline quote is from John Embry, who had emailed this morning asking me my opinion on the jobs report released this morning.   Here’s my response, verbatim:

John, I woke up late this a.m., about 8:40 EST – that’s how much I care about the employment report.  I turned on the tv to check the markets and saw the 292k and literally laughed out loud.  It’s beyond shameless – it’s a full frontal assault on our intelligence.  The Govt claims 45k new jobs in construction? But we find out earlier in the week that the Govt admits to rigging the construction spending number for the last 10 years. Is this some kind of joke? 

The NFP is a completely fictitious number and it truly confounds me every month to see how much time, energy and money is spent by the financial mafia discussing a number that is indisputably 100% fabrication.

I don’t want to tossed into the cesspool of analysts who get sucked in to dissecting and discussing an economic report that is entirely fictitious.  Let’s face it, it’s a made up number.   The number reported is not even remotely credible when put in the context of what’s happening to the U.S. economy.

I have better things to do with my time, like discuss this weekend’s NFL playoff games.  I can assure you, Embry’s knowledge and analysis of NFL football is at least on par with his high level of insight – and the ability to communicate that insight – on the financial markets.

To me the more interesting and relevant conversation encompasses how much longer can the insiders keep the financial markets propped up and how much longer will it be before the Government imposes complete totalitarian control over our system.

The response to today’s payroll by the stock and precious metals markets tells us that the market does not believe the NFP report.  When the headline hit, the S&P 500 futures spiked up 14 pts to go up 30 pts from where they were at yesterday’s 4 p.m. NYSE close.  Gold was smashed $8.   Currently, three hours later, the S&P 500 cash market is down 8 from yesterday’s close and gold has snapped back $13 from post NFP low print.

I will point out that the homebuilder stocks have dropped over 11% this year to date.  By the financial media’s yardstick, they are halfway to being considered in a “bear market.” If the NFP number had any fathomable degree of credibility, the homebuilder stocks would have staged a big rally today.  They are down 2.2% today alone.   Nothing more needs to be said on this matter.

Please have a good weekend – enjoy what you can, as much as you can, while you still can. The rug is being pulled out from under us and the landing will not be pleasant.

Shorting Alpha: Short Seller’s Journal Update

Subscribers to my Short Seller’s Journal who took advantage of the two ideas presented in the latest weekly issue are up 11.7% on the long term short-sell play and 13.6% on the “Quick Hit” idea.  The option play I recommended is up 135%.  In comparison, the S&P 500 is down 4.8% this week.     Short Seller’s Journal

The long term short-sell play is an extremely overvalued stock that offers a way to short SubscriptonGraphicWall Street.   The “Quick Hit” idea was stock that ran up last for absurd reasons and I thought would sell off a lot more than the market this week if the market was weak.  It is also insanely overvalued but was suggested as a one week trade.